The comments made by a Johnson & Johnson /zigman2/quotes/201724570/composite JNJ -0.57% executive earlier this week about biotechnology valuations calls attention to the struggling biotech sector.
“It’s really hard to say whether there’s been a capitulation or a recognition that values have come down,” J&J CFO Joseph Wolk said Tuesday, according to a FactSet transcript of the company’s fourth-quarter earnings call. “We probably need to see a little bit longer period of that. I don’t think things are out there necessarily on sale.”
Wolk made his remarks after J&J CEO Joaquin Duato told investors that the company is considering smaller, tuck-in deals before it moves forward with plans in 2023 to split the company into two businesses : one focused on consumer health, and the other on medical devices and pharmaceuticals.
“Our position in cash today makes us be more aggressive in that area,” Duato said, noting that the company will be in a net cash position for the first time in four years.
Many large pharmaceutical companies reported record performances in 2021, whether that’s a decade-high stock price or shares that outperformed the broader market as investors continued to pour money into companies making COVID-19 vaccines and treatments last year. Biotechs, on the hand, have seen few of those gains.
Pfizer Inc. /zigman2/quotes/202877789/composite PFE -0.93% , which makes a COVID-19 vaccine with BioNTech SE /zigman2/quotes/214419716/composite BNTX +0.53% and an COVID-19 antiviral, Paxlovid, saw its stock soar 45.1% over the past year, while Regeneron Pharmaceuticals Inc. /zigman2/quotes/203149337/composite REGN +1.82% , which makes monoclonal antibody treatments, watched its shares go up 17.4%. J&J’s stock hit a 10-year high of $179.47 on Aug. 17. The NYSE Arca Pharmaceutical Index /zigman2/quotes/210598443/delayed DRG +0.40% is up 7.0% over the past year.
But the biotech sector largely lagged behind its pharma peers in 2021.
Over the past year, the iShares Biotechnology ETF /zigman2/quotes/206189322/composite IBB +3.37% declined 23.3%, the Nasdaq Biotechnology Index /zigman2/quotes/210598353/realtime NBI +3.36% fell 20.4%, and the SPDR S&P Biotech ETF /zigman2/quotes/205950134/composite XBI +5.68% tumbled 41.9%; the broader S&P 500 /zigman2/quotes/210599714/realtime SPX +2.39% , however, is up 13.0%.
“Biotech performance continues to be challenged in 2022,” BMO Research analysts said Tuesday. “Sentiment could be helped if guides are good and talk of M&A remains.”
Merger-and-acquisition activity and value in the pharmaceutical and biotech sectors has dwindled over the past two years. There were 69 deals worth $128 billion in 2020 and 90 deals worth $108 billion in 2021, according to EY . That’s significantly down from 2019, which had 70 deals worth $261 billion.
That said, Wall Street still sees moneymaking potential in some of the hundreds of publicly traded biotech companies.
“Biotechs that are in the clinic vs. preclinical, deeper in the clinic vs. earlier in the clinic, or have validated strategies/science (and you can still have this pre-clinically to a degree) vs. making bets where pathology is less understood could all potentially be 2022 beneficiaries of biotech’s 2021 underperformance,” Mizuho Securities analyst Salim Syed told investors in a Jan. 19 note.